Pressure on telcos, water utilities heightens political risk — Moody’s

MANILA, Philippines — The pressure exerted by Malacañang on big businesses, particularly on telecommunications providers as well as water concessionaires, may indicate unpredictability as well as weakening political and legal governance in the Philippines, according to US-based rating agency Moody’s Investors Service.

In an online media roundtable, Moody’s senior vice president Christian de Guzman said the debt watcher has assigned a higher political risk to the Philippines due to the unpredictability in government policies.

“We have cited that there has been a weakening in political and legal governance that shows somewhat of a risk of unpredictability with regards to policy. And these are tied with relatively high political risk that we assign to the Philippines,” De Guzman said

In his fifth State of the Nation Address, President Duterte told PLDT’s Smart Communications and Ayala-led Globe Telecom to shape up by December or face expropriation.

Businessman Manuel V. Pangilinan leads PLDT while the Ayalas control Globe. Both businesses also control water concessionaires Maynilad Water Services Inc. through Metro Pacific Investments Corp. and Manila Water Co. through Ayala Corp.

The government has crafted new concession deals with the two water companies as the current agreements are allegedly disadvantageous to Filipinos.

De Guzman said Moody’s is also looking at other developments including the failure of media giant ABS-CBN to obtain a new franchise from the House of Representatives.

“I think we are looking at what that means for institutions and governance strength. As I’ve mentioned, there are certain mitigating factors currently, but it is something that we are looking at as well,” he said.

Last July 16, Moody’s affirmed the Baa2 credit rating and stable outlook of the Philippines, reflecting a vote of confidence on the ability of the economy to survive the global economic fallout from the COVID-19 pandemic.

Despite the weakening political risk, Moody’s also took note of the country’s economic and fiscal management that can help the Philippines weather the health crisis.

“We also say that despite a lot of this political noise and rhetoric, the fiscal and economic management has been unaffected and continue to exhibit a great degree of credibility and effectiveness,” de Guzman said.

De Guzman said the economic outlook for the Philippines remains highly uncertain, but the strengthening of the country’s fiscal position in recent years would provide a layer of protection  against the COVID-19 shock.

Furthermore, he said the country’s structural economic and external strengths remain intact, notwithstanding the acute shock from the pandemic.